Senate Economics References Committee hearing

Opening statement by Grant King, President of the Business Council of Australia, to the Senate Economics References Committee hearing

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Thank you Chair.

The Business Council and its members welcome the opportunity to reaffirm our commitment to the Senate - to invest more in Australia if a reduction in the corporate tax rate is passed.

Given the importance of the Enterprise Tax Plan to the nation we believe it is only fitting that it undergo close scrutiny. We hope that this level of scrutiny applies to other significant public policies in the future.

Unfortunately, the committee’s tight timetable has meant that most of our member CEOs have been unable to move other commitments, so we appear today with their representatives on behalf of all the signatories to the statement.

We understand the committee sought answers from our members to several questions about their current and future business plans in relation to the Enterprise Tax Plan.

It would be difficult for any company to disclose the requested information because it is at once highly commercially sensitive and based on assumptions and variables that could over time render the information the subject of legal challenge. Such information, if disclosed, would also be highly valuable to competitors, including in those countries who compete with Australia for capital, jobs and investment.

Circumstances will be different for each company, however the Business Council sought general legal advice on behalf of its members. I would like to table that advice which sets out the legal issues which directors and senior executives would need to consider, including the commercial sensitivity of the information, ASIC guidelines, the ASX listing rules and directors’ fiduciary duties.

We have been advocating for a reduction in the company tax rate for many years. That is because locking in a reduction in the rate is urgent and vital to keeping Australia competitive.

Of course, we would prefer to be having a discussion about broader tax reform as we set out over two years ago when we released our three-stage tax plan. However, the absence of a broad tax reform agenda should not be a reason to delay any tax reform. The Enterprise Tax Plan represents the only growth-enhancing plan currently on the table.

More importantly, reducing the corporate tax rate would also be the first step in any good, comprehensive tax reform package because it is the most damaging federal tax. Treasury analysis shows that the 30 percent company tax rate is the most harmful federal tax in terms of its impact on economic growth.

Our high corporate tax rate is the area where we are under the most competitive pressure – we now have the 3rd highest rate in the industrialised world. A globally competitive tax rate is one of the most direct and effective economy-wide policy levers we have to boost investment.

Reducing the corporate tax rate is the springboard that allows you to grow the economy which in turn provides you with greater fiscal capacity to undertake further reform.

As we said in our original commitment, if the Senate passes this important legislation our members, as some of the nation’s largest employers, commit to invest more in Australia which will lead to employing more Australians and therefore stronger wage growth as the investments build.

In fact, over the past 18 months our member CEOs have repeatedly called for the Parliament to pass the Enterprise Tax Plan.

Why have they done this?

They’ve done it because this plan is measured, fiscally responsible and fully accounted for, but most importantly a reduction in the tax rate is about sending a signal for investment.

Investment allows businesses to expand, hire new workers, and become more efficient, to enter new markets and export.

A competitive tax system telegraphs that Australia intends to remain internationally competitive.

Businesses will be able to bring forward investments ahead of the actual tax cuts if they are confident that the lower rates will apply as investments come on stream.

When companies are weighing up where to invest do we really want to put Australia at a competitive disadvantage?

The US slashed its corporate tax rate by 14 percentage points almost overnight, while Australia’s proposed, modest five percentage point reduction takes ten years to be fully phased in.

The IMF confirmed that the US tax cuts will draw substantial investment funds into the US from global markets.

The reality is that company tax is a tax on investment, and as a nation we cannot afford for investment to go elsewhere, because so too will the growth it drives.

We can’t afford to deny Australians the opportunity to grow the economy by $18 billion a year - that’s an additional $180 billion over 10 years.

The facts show that Australian workers benefit the most from growth. ABS statistics show that 55% of the benefit of economic growth historically goes to income through more people working, more people working more hours and higher incomes.

This is a fact not a forecast.

That is why we are confident in Treasury modelling that shows over half the benefits from reducing the company tax rate to 25 per cent flow to Australian workers and households.

Government revenues would be around $4 billion higher (in today’s terms) every year. This will help fund the services we all want and need.

But don’t just take our word for it.

An OECD study late last year stated that company tax cuts bring benefits to people at all income levels and do not unfairly favour the rich.

This advice was backed by Professor Richard Holden, a leading economist, who wrote in the Australian Financial Review in January, that company tax cuts are “not a gift to the so-called big end of town’’ and helped to redress economic inequality.

Deloitte Access Economics partner Chris Richardson, has said reducing the corporate tax rate for all businesses to 25 per cent would be simultaneously good for companies, shareholders and workers – that the whole point of company tax reform was that it increased the size of the pie.

Extending the tax cuts to larger businesses will also help small businesses. Small businesses already have access to the tax cuts, but they do not operate in a vacuum.

As Peter Strong, CEO of the Council of Small Business Organisations Australia, said if the tax cut is not extended to all businesses it will eventually become meaningless.

He argues if big business isn’t investing, then there are fewer opportunities for small business which will mean less jobs and less prosperity for Australians.

We welcome the Opposition’s investment guarantee scheme. By proposing to introduce accelerated depreciation for certain investments, the Opposition is acknowledging that lower company taxes encourage stronger investment.

They have acknowledged that tax matters when you want to send a signal to encourage more investment.

However, we do not believe that the guarantee is a substitute for the company tax cut which will have a bigger benefit across all forms of investment in the economy, not just investment in physical assets but also investments in people.

The plan for company tax cuts is supported by the facts and has also been independently and rigorously modelled.

We are very disappointed that economic fundamentals and previous political bipartisanship are missing during this significant debate about Australia’s economic future. Australia needs to grow because only through growth can we secure a better future for all Australians.

The fuel for growth is investment and investment needs a competitive tax rate.

The characterisation of business during this debate is letting us all down. Business is the engine of growth in the Australian economy.

So who is business?

Business is the 10 million of the 12 million working Australians who work in them.

It’s the almost 6 million Australians who own shares in Australian companies. It’s where their superannuation is invested and whose retirements depend on those businesses continuing to grow and prosper.

It’s the ecosystem of small, medium and large business that together generate $555 billion of economic activity a year.

Now is the time to push hard for investment that increases productivity so we can create the conditions for higher incomes.

Now is the time to make additional investments in sectors like mining, agriculture, energy and advanced manufacturing and encourage new investment in the digital economy so we can compete and export on the global stage.

This is what a more competitive company tax rate is all about. Driving more investment so we can grow our economy by innovating, exporting more, expanding existing businesses, starting new businesses, creating new jobs and delivering higher incomes.

We are falling behind on our tax rates. We have no time to waste.

We look forward to the Senators questions on our commitment to invest more in Australia if the Enterprise Tax Plan passes the Senate.